Pandora's Near-Death Experience
Pandora Media has made lots of friends with its free Internet radio. And those friends have shown their fidelity -- by saving the company. In 2007, when federal regulators issued a ruling that more than doubled royalty rates for Web radio, Tim Westergren, Pandora's 43-year-old founder, turned to users for help. About 1.7 million Pandora faithful called, wrote, or faxed Congress. As a result, Pandora and other Web-radio players are close to a compromise with the recording industry. Inc.'s Ryan McCarthy spoke to Westergren about his grass-roots campaign.
When did you realize Pandora was in trouble?
From Day One, we knew that if we didn't get this ruling changed, we'd have to shut down. We came up with a plan to involve our listeners. It was an absolute Hail Mary. If that didn't work, we were finished. We knew our listeners' e-mail addresses and even their congressional districts from the contact information they provide when they sign up with us. So, we asked our listeners to call Congress on our behalf. We said to our customers, "This is going to mean an end to Web radio. Whatever you're comfortable with, please do."
How close did you come to actually closing down?
Our investors wanted to shut us down. We were hemorrhaging money. Investors have to look down the road and see signs of hope. If not, then they're just throwing good money after bad. So, there was this long discussion: Should we hibernate? Should we shut it down in the hope we could bring it back up again?
How did you persuade your investors to keep going?
Once we got this traction with grass-roots lobbying, I think the board thought, OK, we have a hook here. We can make something happen. But it's been a year of persuading and cajoling our board to stay with us. It's been a very tenuous year.
When did you start to see light at the end of the tunnel?
Over the course of a year and a half, more than two million people contacted Congress, and about 1.7 million of them were Pandora users. Congress instructed both sides to work out a deal, setting the stage for the very long negotiation with the recording industry that we're just wrapping up now.
What did all of this mean for you and your staff?
It's been terribly negative and draining, a real morale suck. We were facing the end of our company. It's very unsettling to go to work every day with that hanging over you. It was difficult to keep everybody focused, particularly our sales team. Like a lot of sales teams, our ad salespeople like to plan a year ahead. What advertiser is going to do that with a company that could go out of business at any time?
Now that you have this huge grass-roots political force, what are you going to do with it?
We view this constituency as our protector. It allows us to stand up to [the recording industry]. It is our counterweight to the power of the major copyright holders and the major labels. We're going to use it to ensure fairness. We're not going to take advantage of it. Pandora has always been very willing to pay royalties to artists; helping artists is part of our mission. But we can't go on being picked on as an industry. Now, with this support behind us, we can prevent that from happening again.